Mid-term review details foreign trade plans

The mid-term review of India’s Foreign Trade Policy (FTP), released by Suresh Prabhu, the minister of Commerce and Industry on December 5th 2017 proposes a number of policy reforms aimed at boosting exports of goods and services. The policy aims to achieve exports of US$900 billion by 2020, while also strengthening employment generation and value-addition in the country, along with engaging greater participation on regional and global value chains. The review also incorporates the provisions of the Goods and Services Tax (GST) in regards to exports. 

The key proposals in the mid-term review of the FTP to further boost exports are as follows:

• Enhanced Export Incentive: An increased provision of Rs8,450 crore (US$1.3 billion) (34 per cent increase) has been extended for annual incentives under the Merchandise Exports from India Scheme (MEIS) and the Service Exports from India Scheme (SEIS). This has raised the MEIS incentive by 2 per cent for ready-made garments and made-ups as well as for exports by all existing MSMEs/labour intensive industries. SEIS incentive has also been proposed to be raised by 2%.
• GST related measures
  • Sourcing of inputs/capital goods for export-import as well as from domestic suppliers – without upfront payment of GST, to minimize working capital blockage (one of the main concerns of exporters after GST roll out);
  • Validity for Duty Credit Scrips increased from 18 months to 24 months, to enhance their utility under the GST framework
  • GST rate for transfer/sale of scrips reduced to zero from 12%.
• New trust based self-ratification scheme introduced to allow duty free inputs for export production under duty exemption scheme with a self-declaration
• Focus on Trade Facilitation through a one-point contact (contact@dgft launched on Directorate General of Foreign Trade (DGFT) website) and setting up of National Trade Facilitation Committee to facilitate ease of trade across borders.
• New Logistics Division in the Department of Commerce to develop and coordinate implementation of Action Plan for integrated development of Logistics sector.
• A modern Trade Analytics Division has been set up at the DGFT for well informed data based policy interventions. The initiative envisages processing of trade information from DGCIS and other national and international databases related to India’s key export markets.
• Given the importance of services in India’s export basket, and recognizing the need for customized promotion and facilitation support for export of Services (distinct from those for merchandise exports), a new Services Division is being set up at the DGFT. 
• Enhanced support to exporters, particularly MSMEs, for exploring new/difficult markets and new products, through Export Credit Guarantee Corp.

India’s trade growth potential

Trade is a significant contributor to India’s economic growth, accounting for about 45% of India’s GDP. Successive governments have brought about transformation of trade policies and strategies that have enabled steady double-digit growth in trade, resulting in a 2% share of world exports in 2015 (compared with  0.4% in 1991). Though India is well integrated into world trade, its share is considered well below potential and not commensurate with India’s economic clout.

The measures proposed in the mid-term review reflect the Government’s preparedness and intent to evolve an efficient institutional ecosystem that is responsive to the dynamic requirements of international trade

In April 2015, the new Foreign Trade Policy (FTP) for the period 2015-2020 was unveiled, setting the following ambitious targets:

• Increasing exports (merchandise and services) to US$900 billion
• Share in global exports from present 2% to 3.5%
• Playing a leadership role in international trade organizations.

However, as a result of several external factors, including unfavourable movement of commodity prices and fluctuating foreign exchange rates, India’s export performance has been adversely affected.

India’s merchandise exports stood at US$274.6 billion in 2016-17, 4.7% higher than US$262.2 billion in the previous year, but still lower than US$310.3 billion achieved in 2014-15. Based on improved exports in April to October 2017, the Federation of Indian Export Organisations (FIEO) has projected merchandise exports to reach US$325 billion in 2017-18. Services exports have increased from US$142.3 billion in 2011-12 to US$163.1 billion in 2016-17 (about 3.35 per cent of global services exports). Also, during this period the share of services in total exports from India has increased from 31.58 per cent to 36.8 per cent.

Measures to improve trade relations

Based on export performance during April to October of 2017, FIEO has projected India’s merchandise and services exports to cross the US$500 billion mark during fiscal 2017-18. This is buoyed by product diversification and improved competitiveness in the international market. FIEO has further pegged India’s exports to reach US$700-725 billion by 2020, well short of the FTP target.

With the Ministerial Conference in Buenos Aires closing without any conclusive statement on the Doha Round, the WTO negotiations do not seem to be making much headway. Therefore, India is likely to continue pursuing and strengthening regional as well as bilateral engagements for boosting trade. The Commemorative Summit on January 25th 2018, to mark the 25th anniversary of India-ASEAN partnership, is another initiative to boost trade and other relationships with the ASEAN countries, under the Government’s “Act East” policy.

The measures proposed in the mid-term review reflect the Government’s preparedness and intent to evolve an efficient institutional ecosystem that is responsive to the dynamic requirements of international trade. Whether or not the FTP targets are achieved by 2020, India is set to further strengthen its position as a key global player in the coming years.